The cryptocurrency market has an interesting way to take even the most experienced warrior by surprise, as basically every bull or bear market shows similarities to previous cycles only to veer in an unexpected direction and wipe out the fortunes of modern crypto-millionaires.
Such was the case with the weak end of 2021, which completely ran counter to the $100,000 bullish BTC price estimate that crypto analysts and influencers have been pressing nonstop.
Currently, the bitcoin price is down more than 50% from its all-time high of $69,000, and altcoins are on the decline, many of which are down more than 60% in the past two months. At times like these, traders need to regroup and rethink their investment strategy, rather than just buying every time the price drops.
Here are five strategies that traders can use to weather the unpredictable crypto winter and retain as much of their portfolio value as possible.
Reduce exposure to highly volatile cryptocurrencies
When a market downturn begins, the first step is to re-evaluate existing positions and reduce exposure to the most volatile assets.
Often these are new projects emerging from popular sectors of the crypto market such as meme coins or NFT or repatriation projects such as Wonderland (TIME) as many of the new token holders are new to the community rather than long-term investors as a user base for more established projects.
A good way to start the evaluation process is to view the project’s GitHub account to see the level of activity and the number of developers involved in developing the protocol.
If there is little or no development, despite flashy marketing ploys and big promises, the investor should cancel the project when the market starts to lose momentum.
Traders can then invest this money in stackable coins, which can be wagered on to make a profit or buy future market dips.
Average dollar value
Dollar Average Value (DCA) is the process of purchasing an asset in segments over time for the average price paid and calculating price changes caused by volatility.
While a DCA strategy is a good way to increase the availability of major solid projects over time, it is usually best to wait until the dust has settled and the consolidation period has begun.
Targeting the average dollar value should be on projects with active development, committed communities, and a roadmap outlining how the project will continue to grow and remain viable into the future.
Possibly the easiest way to increase the value of a wallet over the long term, staking removes the pressure of obsessing over daily price fluctuations as the invested asset continues to accumulate tokens.
Most single-team protocols offer the ability to share native tokens on the network to earn money, including Solana, Cardano, Polygon, and Avalanche.
Ether holders can also share their tokens in the Eth2 beacon chain, but it is important to note that staking rewards will not be required until Eth2 is fully launched.
There are plenty of other betting options available, from gaming protocols like Axie Infinity and Illuvium to NFT marketplaces like LooksRare, so after diving deep and picking major strong projects, betting becomes a matter of setting and forgetting.
Look for projects with a growing ecosystem and advantages
Projects that help token holders make money from cash bets, loans and giveaways are also worth considering when the market turns bearish.
Staking is the simplest form of this as the number of tokens increases over time, but other options include token launch ramps, NFT markets, and protocols known to offer airdrops to community members.
An example of a protocol where early adopters are rewarded is the Cosmos Network (ATOM) and its growing community of projects connected via the Inter-Blockchain Communications (IBC) protocol.
ATOM entities and OSMO members have been rewarded with a long list of airdrops from projects launched into the ecosystem as a way to help kick-start activism in their communities.